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France is hurting its domestic automakers with diesel policy shift

For environmental and public health reasons France is ending a government policy that has long promoted the purchase of diesel cars, but the move will hurt domestic automakers Renault and PSA/Peugeot-Citroen.

Diesel models accounted for 71 percent of Peugeot brand sales through October, 68 percent for Citroen and 64 percent for Renault, according to industry analysts Inovev.

The French carmakers will thus feel an obvious sting. These are companies in which the state owns investment stakes. The government owns 15 percent of Renault and 14 percent of PSA.

IHS Automotive analyst Carlos Da Silva said the policy shift is a blow for the French automakers because the government has in the past encouraged French drivers to drive diesel cars even when it was not the most rational decision.

"Lots of French driver embraced diesel cars as they focused on the pump price and the expected resale value of their car but without doing the maths," he said. About 80 percent of diesels on French roads are small cars that are driven less than 15,000km a year, so owners do not get the full benefit of diesels' better fuel economy.

"French manufacturers are saying: ‘you have pushed us to invest in diesel and now you are compromising these investments in our home market,’” Da Silva said. But he thinks the policy shift is unlikely to be a game changer. Renault and PSA sells a lot of diesels outside France and diesel cars will continue to have a big role in helping automakers to reach ever-toughening CO2 emissions targets.

The government is phasing out purchase incentives for diesel cars and increasing fuel taxes that will raise by 4 cents the price of diesel, which is much cheaper than in most other European countries, compared with an increase of 2 cents for gasoline. Renault and PSA criticized the move.

Valls' speech came soon after a report from the CNRS research institute that diesel fume particles are responsible for 42,000 premature deaths in France a year. It also reported that cardiovascular and other health risks associated with diesel emission particles in Paris in December 2013 were comparable to the health hazards of inhaling second-hand cigarette smoke.

Valls was applauded by the French media. According to the French website Auto News, the Prime Minister'S discourse marked for the “first time in a very long time that the French government is adopting a more reasonable clean fuel policy by targeting pollution-prone vehicles, in this case old diesel vehicles, instead of just using environmental concerns as a pretext to pump money into a particular French industry.”

Valls discussed creating a car identification system that will rank vehicles by the amount of harmful diesel emissions they release. A sensible policy might levy taxes and use other disincentives to limit the purchase and the use of vehicles with older and dirtier pre-Euro 6 diesel engines. This would make especially good sense in urban areas in France where high concentrations of diesel particulates have been linked to health problems.

Valls spoke of the need to promote cleaner fuel vehicles, such as EVs and hybrids. Older diesel cars do not fall under cleaner fuel cars category and should gradually “spend more time in the garage,” he said.